Article What stops young workers engaging with their pension?

Getting your employees to engage with their pension can put them on the road to having a happy, more comfortable retirement when it comes around. Yet many people aren’t giving their pension saving enough attention – particularly younger workers.

A higher cost of living in recent years might have impacted how your employees are managing their immediate finances and could play a part in their lack of future planning. However, other consistent blockers are likely to be playing a role as well. We outline the emotional and practical blockers that might be stopping your younger employees from saving and engaging with their pensions – and highlight ways you can help them to overcome this.

4 barriers to pension engagement in young people – and how to help

So, what’s stopping your younger employees from saving for their future? Here are a few factors that could be putting the brakes on things, and some suggestions on how to support them.

1. A lack of confidence
2. Competing financial priorities
3. Auto-enrolment causing complacency
4. Mental health and financial wellbeing

1. Lack of confidence

Younger people generally have less self-confidence when it comes to managing money and with financial services and products. They also find it harder to think far ahead in general. In our research of over 10,000 UK respondents, only 14.3% of those aged 16-34 have a concrete vision of where they want to be financially in 15 years’ time.¹ This uncertainty could put some people off even trying to start planning ahead.

How to help

If you can, a key thing to consider is offering financial advice as a workplace benefit. Advisers provide impartial, regulated advice specific to each individual’s personal circumstances, and can support your employees in better visualising their future and financial goals. In our research of over 10,000 UK respondents, we found that people with a stronger connection to their future-self felt more confidence, joy and satisfaction with respect to their finances.¹

If you’re unable to offer direct financial advice, make sure to highlight where they can find it. The Government’s MoneyHelper website offers free, impartial guidance on a range of money matters, but also has tips on finding a paid adviser. Our Financial Advice Hub can also support employees with taking their first steps in getting advice.

Breaking saving down into smaller steps – and showing your employees how to go about it – could also help. Planning for the future can be a lot more manageable with a checklist, on MoneyHelper’s website, of smaller tasks to tick off, to make it feel less overwhelming.

Find out more about how pension confidence impacts your employees’ financial wellbeing.

2. Competing financial priorities

Many younger workers might simply be failing to save because they view retirement as being too far away to worry about. With other immediate demands on their finances (such as buying a home or simply covering the cost of living), short-term goals could be taking priority.

How to help

If money worries or goals in the present are preoccupying your employees, helping them to improve their financial wellbeing could give them the headspace and resources to prepare for the future, too. They might benefit from budgeting tools, or our articles like Which budgeting method is best for you? to help them develop good saving habits in a way that works for them.

You could also explain the benefits of contributing to a pension from a young age. Point them to helpful online resources for further information, like MoneyHelper’s Why save into a pension? A key draw of contributing early could be the benefit of compounding (growing their money over time). However, remember that the value of an investment can fall as well as rise and isn’t guaranteed. The value of a pension pot when the employee comes to take benefits may be less than has been paid in.

It’s important to be mindful of the fact that some employees genuinely won’t be able to contribute more than the minimum into their pension.

3. Auto-enrolment causing complacency

By removing the need to take active steps to save into a workplace pension, auto-enrolment harnesses the power of inertia. This is the tendency to keep doing what you’re already doing and not take active decisions to change a behaviour or way of doing things. In the case of auto-enrolment, this means people might be less likely to opt out of their workplace pension. While this is a positive impact of inertia, it can have potentially negative effects too.

In our research of 2,000 UK adults, 62% of 18-34 year-olds were confident they were saving enough for retirement.² And yet 56% said they pay less attention to their pension because it happens automatically. Over half (52%) also said they’re less inclined to take action because it’s ‘taken care of for them’.²

From these results, it’s likely that inertia is playing a part in young people paying less attention to their pensions. They may also have misplaced confidence that the minimum total auto-enrolment contribution of 8% will be enough for their retirement. Realistically, this amount is unlikely to be enough for a lot of people.

How to help

Education and awareness are needed so that your employees understand that minimum contributions might not be enough to fund their retirement aspirations. Signposting them to a pension forecast calculator like this one from MoneyHelper, could help them to better visualise what they’re likely to get from their pension, and how much more they might need to save. You can also point them to the Pension and Lifetime Savings Association’s Retirement Living Standards, which gives an estimate of what single people or couples might need to achieve different standards of living when they stop working.

From there, if your employees decide they’d like to increase contributions to their pension, then you could think about how to make the process simpler for them. For example, make sure resources and guides are easily accessible so they know how to action a change. Or provide a template or calculator so that they can work out any difference to their take-home pay before making changes. If you have a workplace scheme with Aegon, remember you can use our employer resources to help you run your own campaigns to raise awareness.

4. Mental health and financial wellbeing

Many of the younger generation feel worried about money in general. They might feel that it simply isn’t possible to put money aside to save, particularly as younger workers typically have lower average salaries. This can be exacerbated by – and in some cases can contribute to – any mental health conditions they may be experiencing, which could leave people stuck in a cycle of poor financial management.

How to help

One way to help them overcome this could be to signpost employees to extra support. Organisations and charities such as Mind have plenty of resources to help, or you might already have workplace wellbeing benefits in place too. You could also ease any anxieties around pension management by showing them how simple it can be, giving them the tools they need to feel more in control of their finances without it needing to be complex.

Support their aspirations

Saving for a pension is never easy, which is why it could be helpful for pension education and financial wellbeing to become a core part of your company’s ethos. Use external resources such as our employer financial wellbeing hub for a range of resources to support your employees in picturing their future selves and becoming a financial wellbeing all-rounder. You’re not expected to have all the answers in-house – so bring in the experts where you can for additional support.

Ultimately, by giving your employees the right support, tools and education, you can help them overcome any blockers they may be facing – and give them the best possible chance of having the retirement they aspire to.